8 questions to get to know your lender
Ask lenders the right questions
- What loan programs do you offer?
- What are your current interest rates?
- What are the closing costs and fees for this loan?
- How much communication will we have during the lending process?
- How do you transmit your documents?
- How quickly do you expect this loan to close?
- Are there any prepayment penalties?
- What will happen to my loan after closing?
Finding the right house can be stressful enough. Finding the right partners to work with during the homebuying process can be even more stressful.
A reputable, trustworthy lender is one of the most important partners that you will work with during this process. By asking some detailed questions of several lenders, you can help find the right partner for you.
1. What loan programs do you offer?
This is a good initial question to ask, as it should prompt a lender to ask questions about you, thereby kick-starting your potential relationship. Depending on your personal and financial situation, you may qualify for a Veterans Administration loan, or a low-down-payment loan, or one of many other loan programs available through different lenders.
Good lenders should want to know as much about their potential borrowers as possible and should tailor each loan to the borrower's exact circumstances. And as a borrower, you want to feel like you have a strong level of trust in your lender, otherwise you may suffer with a nagging concern that you're not receiving the best possible service.
2. What are your current interest rates and annual percentage rate (APR)?
Any prospective homebuyer should ask a lender about mortgage interest rates. Don't forget, however, to also ask about the APR, which provides a more comprehensive look at the rate borrowers will pay on a loan. APR takes into account not just the interest rate but also other fees, points and costs that are built into the loan.
3. What are the closing costs and fees for this loan?
A down payment won't be the only money you have to come up with when purchasing your house. With any mortgage, there are closing costs and other associated fees involved. Closing costs can cover things like appraisals, underwriting and title insurance. Many lenders charge other fees, however, for processing your loan, adding to the money you'll need to pay at closing.
Don't just ask for the dollar amount of these costs. Also ask for details about why certain fees and costs exist, and why the lender charges you for them. This will encourage more transparency about your loan as well as create some possible negotiating opportunities with the lender.
4. How much communication will we have during the lending and closing process?
Some lenders are receptive to late-night and weekend inquiries from their borrowers while others might be less flexible on that front. Some lenders will want to stay in constant touch with their borrowers to ensure they're not doing anything that could hurt their credit, and therefore their loan. Think about how much contact and access you will want.
5. How do you transmit your documents?
As online transactions become more prevalent in many facets of life, it's a good idea to think about how digital you want your mortgage-loan process to be. Some lenders can accept most, if not all, paperwork from you digitally, but some may require hard copies of some documents. Some lenders may also allow for many of the closing documents to be signed electronically, while others will use a more traditional method that involves signing stacks of paper at a closing appointment. Figure out which process you prefer, and ask what your prospective lender offers.
6. How quickly do you expect this loan to close?
Barring unforeseen issues, most lenders can close loans in anywhere from 30 to 60 days. Still, if you are in a rush to get your mortgage and move into your new house, it is worthwhile to ask how quickly a lender can close your loan.
7. Are there any prepayment penalties?
Although these are uncommon, there are still lenders who enforce penalties against those who pay off portions of their loan ahead of schedule. If you may want to pay your mortgage off ahead of time, or just put an additional $100 toward your payment some months, you will want to make sure your lender doesn't impose prepayment penalties.
8. What will happen to my loan after closing?
Oftentimes, the lender that originated your loan won't be your lender for long. Many lenders sell mortgage loans into the secondary market and may even transfer the loan-servicing rights to another entity. The process has little effect on the homeowner, other than changing the destination of the mortgage payment. But some borrowers will only feel completely secure if their lender remains constant throughout the life of the loan. Even if you are OK with your loan being sold, it's good to find out ahead of time who may be servicing your loan and receiving your payments and inquiries over the years and decades to come.